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Filing under Chapter 7 & 11 bankruptcies on rise in US

10 Nov '08
3 min read

The depreciation in the value of the Indian rupee against the US dollar has not brought the cheer and smiles on the face of Indian garment exporters in the present circumstances, as if this had come about in the past, it would have meant celebration time for the exporters as it means earning more profits for the same volumes of exports.

The reason being that irrespective of the gain in the dollar, the order book position of the exporters has started drying up and since the US is biggest destination for shipments of textiles and garments from the country; the sector has been hit the hardest.

News is emanating from the US of more and more companies filing for chapter 7 and 11 bankruptcies. According to a survey undertaken by an analyst firm, companies who have registered under Chapter 11 has grown by 84 percent in rising from 3,600 filings in 2006 to 6,700 in 2008.

The scenario under filing of Chapter 7 is worse than that of Chapter 11, wherein, about nearly 25,000 companies have filed bankruptcies under the chapter in 2008 compared to 11,400 in 2006, leading to an astounding growth rate of 116 percent and the worst is yet to begin.

Chapter 11 relates to filing an appeal for reorganizing its floundering business while companies permanently shut down their all their operations under Chapter 7. Many leading textile and garment exporting companies and leading associations of India have voiced their concern over the unfolding events which are also leading to delayed payments and in some cases renegotiating of contracted prices.

Most of the leading apparel retail companies in the US like JC Penny, Talbots, Nordstrom, Macys and many other retailers have reported double digit fall in sales in October 2008 compared to the same period in 2007, while only a lucky few like Children's Place, Ross Stores and a few others have been able to buck the trend.

A few of the leading US retailers have announced closure of non-performing stores while the rest are contemplating on similar lines. According to the Apparel and Export Promotion Council (AEPC), India which is the nodal body for garment exporters in India, has recently reported of a drop of 6.5% in garment export sales from the country in September.

This is leading to a sense of panic among small and big garment manufacturers and exporters as they have made or committed huge investments on the back of the boom of the last few years. Leading association bodies and the sector as a whole has appealed to the government to help save the industry which contributes a major chunk to exports from the country.

Fibre2fashion News Desk - India

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